Given that there are both continuous and discontinuous components in the movement of asset prices, existing asset pricing models that assume only continuous price movements should be revised. In this paper, we explore the features of jumps, which are discontinuous movements, by examining Bitcoin pricing. First, we identify jumps in the Bitcoin price on a daily basis, applying a non-parametric methodology and then break down the Bitcoin total rate of return into a jump rate of return and a continuous rate of return. In our empirical analysis, price jumps turn out to be independent of volatility. Moreover, the jumps in the Bitcoin price do not appear at regular intervals; rather, they tend to be concentrated in clusters during special periods, implying that once an economic crisis occurs, the crisis will last for a long time due to contagion effects and the economy will take a considerable amount of time to recover fully. Further, the contribution of the jump rate of return to the total rate of return of the Bitcoin price is lower than the contribution of the continuous return, implying that the pursuit of sustainable returns rather than large but temporary returns will improve the total rate of return over the long term. Finally, more jumps are observed when trading volume is lower, implying that market illiquidity drives discontinuous movement in asset prices. Overall, the features of jump risk are like two sides of the same coin and jump risks are expected to have a significant effect on asset pricing, suggesting that consideration of jumps is essential for risk management as well as asset pricing.
Asset Prices and Trading Volume Under Fixed Transactions Costs
